Fed gave Morgan Stanley and Goldman help on stress tests

Banks had option to freeze their payouts at recent levels, get a ‘conditional non-objection’ grade and avoid failing

By

Liz Hoffman and

Lalita Clozel

July 3, 2018 Updated: 8:42 a.m. GMT

Federal Reserve officials told Goldman Sachs and Morgan Stanley that they were about to flunk a portion of the annual stress tests but offered them a deal to avoid an outright fail and continue paying billions to shareholders.

In phone calls to executives of the Wall Street titans on June 21, regulators told them that to fully pass the test, they would have to cut almost in half the combined $16bn they had hoped to pay out to shareholders, according to people familiar with conversations between the Fed and both banks.